Sunday, June 07, 2015

Why George Osborne must not kow-tow to the Banks over regulatory requirements!

The Sunday Business supplements are all carrying stories
about George Osborne’s plans to offer an olive branch to HSBC in the form of a
levy retreat.

The Sunday Times reports that Osborne is expected to use
the opportunity of his forthcoming Mansion House speech on Wednesday to lay the
ground for a review of the bank levy, in an attempt to head off a threat that
HSBC and Standard Chartered Banks may leave the UK and relocate their HQ’s
elsewhere.

Osborne is expected to offer a typical platitude of
saying that the Conservative Government is committed to maintaining the
‘competitiveness of banks’, whatever that means!

The levy is a global charge on bank assets and it was
introduced by the last Coalition Government as a means of helping to raise
money to counter the appalling damage caused to the country and its economy by
the criminal rapaciousness of the banks in the run-up to the financial crisis.

We must never forget that it was the criminal
irresponsibility of the banks, exacerbated by the greed and dishonesty of the
banking sector employees which predicated the collapse in banking values and
which identified the creation of a mountain of debt, supported by little more
than hot air, and lies.

The Government was forced to extend multi-billions of
tax-payers’ funds to shore up criminal institutions which were in severe danger
of collapsing due to mis-management, hubris, incompetence, and downright
fraud,but no-one within the banking
sector was brought to justice or sent to gaol for their dishonesty.

Imposing a levy on bank assets was nothing more than a
legitimate and much-needed requirement to begin to redress the balance sheet
and make the banks realise just how irresponsible they had been. Nothing hurts
banks more than Government imposing a tax on their assets. Fines don’t hurt
because they are paid by the shareholders.

And the banks’ response?

Well, they have huffed and puffed, and postured and
threatened, in fact behaved exactly like the bullies they are. They have
reached out to their friends in the media and in the PR business, and
encouraged them to peddle soft-soap stories about the damage that might be
caused if they ‘are forced’ to leave the UK.

Excuse me, what ‘damage’ which might be caused! Haven’t
they caused enough damage already with their criminal actions and dishonest
business methods. Haven’t they brought the name of the British banking sector
into disrepute everywhere in the world by their refusal to comply with the
simplest regulations, designed to protect the integrity of business and protect
client’s funds?

Instead of acknowledging their disreputable tactics and
dishonest methods, and invested enough time and energy into developing a new
climate of best practice and compliance, they have moaned and whined, bleated
about the unfairness of being accused of wrong-doing, and then, when the
Americans started to dish out some really serious penalties, and started
kicking some well-tailored butts properly, they complained at the unfairness of
the fact that a foreign regulator was hitting them harder than their own
people.

Having been dealt with for laundering vast sums of money
for foreign organised criminal entities, and breaking international sanctions
on an institutionalised scale, one might have thought that these egregious
crooks would shut up and stay quiet, but instead, they have begun to posture
and preen and contest the legitimacy of the plans that the Government has to
try and introduce a better regime of control and client protection into their
banking sector.

One unnamed banker (how typical, these creatures never
want their name to be known in public) has said that a mere change to the
banking levy might not be enough to keep HSBC in Britain. “...’It’s not just
the levy’, he said, ‘it’s the ring fence (the forced separation of retail and
investment banking), coupled with the new regulations for senior managers, (the
regime which applies special responsibilities to senior bankers which could
make them liable to go to gaol in the event of the collapse of their bank),
‘it’s everything...”

When the proverbial brown stuff was hitting the air
conditioning about banking fraud, the constant complaint was that no-one could
be prosecuted because no-one was to blame. When proposals were laid for a new
regime of responsibilities, identifying senior bankers as those who must, in
return for their ludicrous salaries, perks, benefits and bonuses, be considered
to be responsible for the control of banks, they suddenly all jumped up in
panic and denied ever wanting to be considered to be a responsible person.

I don’t know about you, but this says everything to me
about what the insiders know about the level of criminality inherent in the
banking sector.

They have been doing what they always do in these
circumstances, and have spent a lot of time and money, lobbying H.M.Treasury
over the quality and content of what they consider to be Draconian regulations.

One wonderful UK based fund manager (how these people
always fail to appreciate the stupidity of their public utterances)has been quoted as saying;

“...HSBC could free up about £1 billion of cash to share
out with shareholders if it didn’t have to pay the levy...I hope it leaves, it
would teach the Government a lesson...”

This person has clearly forgotten the level of fines and
costs and lawyer’s fees HSBC has had to pay out to regulators for committing
global criminal offences. I imagine the share out for the shareholders would be
significantly more if HSBC had decided to obey the law instead, and not got
caught committing minor peccadilloes such as laundering billions of dollars for
the Mexican mafia drug cartels, among some more of its esoteric acrivities!

It is this kind of rank hypocrisy that always makes me
laugh when I hear the moans of some of these bloated plutocrats who think that
the City of London is their personal private playground and none of the UK’s
laws should apply there!

Even members of the ‘Great and Good’ are lining up to
tell Osborne what to do about the issue of financial ring-fencing.

Sir David Walker, who once headed up the now deeply
discredited regulatory body, the Securities and Investments Board, has said
there was ‘an urgent and compelling need’ to review the ring fence scheme.

Just in case you are not fully au-fait with this esoteric
piece of banking practice, the ring-fence requirement is one which makes it
imperative for big banks to put their retail arms into stand-alone companies by
2019.

I know, it’s a truly shocking requirement, and one which
should make any self-respecting banker puce with anger! After all, it means
that the funds of depositors will be sacrosanct, protected, ring-fenced from
the capital availability of the wholesale arm of the bank, and not available to
be used to underpin any dodgy financing ploy or scheme which the financiers and
the investment bankers might be wanting to hatch.

It means that in the event of the wholesale arm of the
bank going belly-up through some wild frolic of its managers, the funds of the
clients of the bank will not be put at risk (which will of course limit the
amount of compensation which depositors would need to claim from the Depositors
Protection Scheme). The effect of this requirement would therefore be to
encourage depositor confidence and to limit the damage that might be caused to
their savings that could be caused by the banks engaging in a similar kind of
wild speculation they were indulging in, prior to the financial crisis!

No wonder the bankers don’t want this requirement to
stand, and it is a red line which Osborne must not cross.

No, all this talk of leaving the UK and relocating to
other countries is a lot of hot air.

It is the usual kind of gamesmanship that these rank
bullies indulge in when they cannot immediately get their way when they demand
it.

Why am I so positive?

Right now, the City of London is the head of the global
banking world and they are safer here than they would be elsewhere. HSBC is
still under fire from the fall-out from its Swiss arm’s, tax-evasion scandals,
and there are no doubt a number of US citizens whose funds may have been
embroiled in this fiasco. The US authorities will take a very dim view of any
such actions and will be looking for investigatory cooperation. There is also
the small matter of the handling of the FIFA bribes cash. The deferred prosecution
agreements still extant in the US mean that the American arm of HSBC is still
needing to stump up singularly large sums of capital adequacy.

Moving back to Hong Kong will also have a reputational
risk issue as well. Many investment professional are eyeing such a possible move
with positive approval, believing, most probably quite accurately, that
operating in a less well-regulated environment will mean that HSBC can earn
bigger profits and thus pay bigger dividends. But there is a downside!

Most investors couldn’t give a flying fig for the reputation
of the environment within which the money that pays their returns on investment
is made, they just want to be paid as much as possible.

So although a move back to Hong Kong would mean happier
shareholders, it would also be another dodgy reputational move. Based in Hong
Kong, the Americans would look upon HSBC with positive distaste and be most
unwilling to give them the benefit of the regulatory doubt, next time they get
into trouble. And get into trouble they will, it’s in their DNA!

All in all, I do not believe that all the wives of the
HSBC directors fancy too long an extended stay in Hong Kong. Nice for a visit,
but a bit too claustrophobic for any great length of time.

My money is on them staying in the City for the
foreseeable future, because that is where the centre of financial power lies.

Speaking entirely for myself, I would love to see the
back of them, but I don’t think it’s likely to happen. If they do stay, they
must be made to comply with the regulatory standards that the FCA demands, and
if they fail, then they must be made to pay commensurately.

About Me

Having spent my career dealing with financial crime, both as a Met detective and as a legal consultant, I now spend my time working with financial institutions advising them on the best way to provide compliance with the plethora of conflicting regulations and laws designed to prevent and forestall money laundering - whatever that might be! This blog aims to provide a venue for discussion on these and aligned issues, because most of these subjects are so surrounded by disinformation and downright intellectual dishonesty, an alternative mouthpiece is predicated. Please share your views with what is published here from time to time!